Introduction to

International Trade and Finance

FACULTY OF INTERNATIONAL BUSINESS
Lecturer: Nguyen Thu Huong
Mobile: 0947877111
Email: huongnt@[Link]
 Objectives
Completed this subject, students will be able to:
• Understand the key concepts and terminologies in
international trade
• Understand the forces in international trade environment
• Understand the roles and responsibilities of all parties
involved in international trade and finance
• Understand the process involved in international trade and
sources of laws and convention applicable to such process
• Understand and select the appropriate methods of
international payment
• Understand the current banking practices and forms of
international trade finance
• Take a Certificate of International Trade and Finance(CITF)
 Course overview
Topic 1: Introduction

Topic 2: The international trade environment

Topic 3: Contracts and documents

Topic 4: Methods of payment

Topic 5: Trade Finance Management

 Course timeline
No. Learning topics/ Discussion/ Tests Class period
1 Introduction 6
2 The international trade environment 6
3 Contracts and documents 8
4 Case Study Discussion 4
5 Methods of Payment 20
6 Discussion & Examination 4
 Course Assessment
• Class attendance: 10%
• 01 Case study (covering topic 1, 2, 3): 15%
• 01 Mid-term test: (covering topic 4): 15%
• Final exam: 60%
 Case study
Select a Vietnamese company which have already involved in
exporting. Imagine that you are a trade consultant who needs to
suggest a new country market for the company to make an entry.
Write a report which covering the following contents:
- Introduction
- Company background
- Reasons for finding a new foreign market
- Select a potential country market and do PESTEL analysis to
support your choice
- Select a method of entry and explain your choice
- Conclusion
Writing language: English Word limit: 3000
Deadline: 23/5
 Readings
Required reading
• Guide to International Trade and Finance – Paul, C. & Peter, Mc.
(2014), If University
Supplementary readings
• The Handbook of International Trade and Finance – Anders
Grath (2008)
• Finance of International trade - Eric Bishop (2004)
• ICC publication: Incoterms 2010, UCP 600, ISBP 745
• UN Convention on Contracts for the International Sale of
Goods (CISG)
 Student’s Responsibilities
• Attend class regularly
• At home: Read and prepare answers for questions of the
next class
• In class: take notes and submit answer sheets on group basis
• Work in groups for homework, in-class discussion and case
studies
• Raise your voice if you have any ideas or questions related to
the lecturers
 Topic 1: Introduction

1. The concept of International Trade

2. Risks and risk mitigants in international trade

3. Parties involved in international trade

 1. The concept of International trade
Definition:
International trade is the exchange of goods, services or
performance and capital across international borders or
territories
 Borders or Territories ???
Border: a line separating two political or
geographical areas, especially countries.
Territory: an area of land under the jurisdiction
of a ruler or state
 Borders or Territories ???

Customs depot

Goods

Goods Special customs

supervision areas

Exporting Importing country

country
Customs depot
 Discussion
Read the article on page 1, 2 & 5 and answer the question:
- What are motivations of international trade to Buyer/ Seller?
- Who is the Buyer? Who is the Seller?
- What are the different names of Buyer/ Seller?
- When do we call Buyer/ Seller by its other names?
- Are the objects of international trade always things that can
be seen?
 Comparative advantage
Table 1.1: Using Ricardo’s theory of comparative advantage:
Wine Cloth Total production
units for 1
litre/wine and 1
roll/cloth
Portugal: number of units of 1 1 2
production required to
produce 1 litre/ wine or 1 roll/
cloth
England: number of units of 3 1 4
production required to
produce 1 litre/ wine or 1 roll/
cloth
 Comparative advantage
Table 1.2: A simplified illustration of Ricardo’s theory of
comparative advantage
Portugal England
Total number of units of 2 4
production used
Total output produced 2 litres of wine 4 rolls of cloth
Net output after exchange of 2 1 litre of wine 2 rolls of cloth
rolls of cloth by England for 1 and 2 rolls of and 1 litre of
litre of wine from Portugal cloth wine
Net gain from comparative 1 roll of cloth 1 roll of cloth
advantage
 2. Risks and Risk Mitigants
Discussion:
Whether international trading is more difficult and risky than
domestic one? Why?
Hints: See page 9, 10, 22, 23, 24
Vocabulary check:
What are the differences among the following words?
A. Mitigate
B. Mitigation
C. Mitigant
 2. Risks and Risk Mitigants
Factors How they create difficulties
in international trade?
Languages, culture and time zone
differences
Business partner located in
another country
Complex documentation
Laws and regulations
Foreign currencies
Shipping goods from one country
to another
2.1. Risks involved in international trade
How do the following types of risk create adverse effects to
the Buyer/ Seller?
• Operational risk
• Legal issues
• Exchange rate risk/ Foreign exchange risk/ Currency risk
• Financial risks
• Counterparty risk
• Credit risk
• Transport risk/ Transportation risk/ Risk of transporting
• Fraud or risks related to financial crime
 2.2. Risk mitigants
Read the articles on page 10 & 11 and explain how the
following organizations can help reduce risks involved in
international trade:
• Local chambers of commerce
• Standard protocols and interpretations of legal issues
• Banks
• Specialist freight forwarders
• Insurance companies
• Government or quasi-government sources
3. Parties involved in international trade
Intermediaries : Risk
mitigants, local
authorities, NGOs

Goods/ Services

Seller/ Exporter Buyer/ Importer

Customs depot

Business
organizations
 3.1. Business organization
Definitions:
A business involved in buying and selling goods and services with the
aim of making profit
Classifications:
- Limited or Unlimited (What is limited/ unlimited? See page 6)
- One owner or more than one owner
- Private or public (what is private/ public? See page 8 & page 9)
 [Link] organization
Types of business One 2 owners Unlimited Limited Shares are Shares are
organization owner and more Liability liability traded on not traded
the open on the
market open
market
Sole
proprietor/trader
Partnership
Limited liability
partnership
Limited
partnership
Limited
corporation
Private limited
companies
Public limited
companies
 3.2. Freight forwarder
Organizations that manage the movement of goods
internationally using the appropriate mode of transport
Discussion: What does the phrase “manage the movement of
goods” mean?
Hints: See page 61
 3.3. Insurance companies
Discussion:
- What to insure?
- Why to insure?
- Who must buy insurance? The seller or the buyer?
Hints: See page 62
 3.2. The World Trade Organization
• Formed in 1995
• General Agreement on Tariffs and Trade (GATT)
• 159 members
The WTO provides a forum for negotiating agreements aimed
at reducing obstacles to international trade and ensuring a
level playing field for all, thus contributing to economic
growth and development. The WTO also provides a legal and
institutional framework for the implementation and
monitoring of these agreements, as well as for settling
disputes arising from their interpretation and application.
3.2. The World Trade Organization

Watch a video about WTO and take notes as

much as you can
3.3. The International Chamber of Commerce
(ICC)
• Founded in 1919
• 130 countries
• Main activities:
 Rule setting
 Dispute Resolution
 Policy Advocacy
• Publications: Incoterms, UCP, ISBP

Watch a video about ICC and take notes as

much as you can
Topic 2: International Trade Environment

1. External factors affecting international trade

2. Marketing research before a foreign entry

3. Methods of entering an overseas market

1. External factors affecting international trade

What are the above factors called in Vietnamese?

1. External factors affecting international trade

Case study: Imagine that you are managers of a Vietnamese

seafood company which wants to export to German market.
What should you include in your PESTEL analysis?
Hints: See page 20 & 21
 2. Marketing research
Discussion:

to research???
 2. Marketing research

Researching • Macro: PESTEL

the • Micro: Porter’s 5 forces
environment

• Creditworthiness
Evaluating the
• Reputation
counterparty
 2. Marketing research
See page 25  30, page 55 & 56 and fill out the following table:
Sources Types of information
Government department
Chambers of commerce
Trade missions, exhibitions and shows
Banks
Credit reference agencies
Credit ranking agencies
Credit Insurers
The Internet and the media
Networking
Self-check
3. Methods of entering an overseas marke
The company must decide whether market factors
favor

Manufacturing “at Manufacturing

home” abroad

Indirect Direct Joint Licensing/

export export venture Franchising
 3.1. Manufacture “at home”

Direct Exporting • Sell direct to the foreign end

users

• Engage the services of an

intermediary that specializes in
Indirect Exporting finding foreign markets and
buyers

Vocabulary check
What are the differences among:
A. Export B. Exporting C. Exportation
 3.1. Manufacture “at home”
Discussion:
1. What are the advantages/disadvantages of direct exporting ?
2. What are the advantages/disadvantages of indirect exporting?
3. When should a company adopt direct exporting/indirect
exporting?
Case study:
Watch a video and list the reasons that force Vietnamese seafood
companies select indirect exporting instead of direct exporting.
Hints: See page 30 & 31
 3.1.1. Direct exporting
Discussion:
SUMIMOTO is a company based in Japan specializing in auto
parts. The company has built a manufacturing plant in
Vietnam since 2015. Have SUMIMOTO adopted direct
exporting ?
A. If SUMIMOTO has a subsidiary which has done business
registration in Vietnam
B. If the manufacturing plant is within a special customs
supervision area in Vietnam
3.1.2. Indirect exporting

• Agents
• Distributors
• Co-marketing
 3.1.2. Indirect exporting
See pages 32 & 33 and fill out the table
Obligations/ Rights Agent Distributor
Find and contact the foreign markets/ buyers
Employed by the principal on a commission
basis and retainer fee
Take ownership of the goods
Assume higher risks
Purchase the goods outright and resell
Set the price in overseas markets
Negotiate the sale on behalf of the principal
Negotiate the sale on behalf of itself
Earn a profit
Provide after-sales support
 3.1.2. Indirect exporting
Type of distributors

Number of
Intensive distributors
distributors selling the
Selective same
distributors products in
a particular
Exclusive
distributor/ market
Sole increases
distributor
 3.1.2. Indirect exporting
Discussion: The following intermediaries are agents or distributors?
Hints: See page 31 & 32
Intermediaries Agents Distributors

Export management companies

Export trading houses

Confirming houses

Buying agents
 3.1.2. Indirect exporting
Co-marketing

Supplier Goods A & B

Importers
of A

Cooperation

Supplier
of B

Exporting country
 3.1.2. Indirect exporting
Discussion:
List advantages and disadvantages of indirect exporting
Hints: See page 31
 3.2. Manufacturing abroad
• Joint Venture
• International Franchising
• International Licensing
• Subsidiaries
• International Processing
 3.2.1. Joint Venture
Finnish
Firm

Joint
Venture Vietnamese
German in
Firm Customers
Vietnam

A Finnish firm, a German firm

Brazilian and a Brazilian firm create a
Firm joint venture in Vietnam
 3.2.1. Joint Venture

Italian Firm

Joint Vietnamese
Venture in customers
Vietnam
An Italian firm creates a joint
venture with a Vietnamese
partner to enter the
Vietnamese market
Vietnamese
Firm
 3.2.1. Joint Venture
Discussion:
List advantages and disadvantages of Joint Venture
Hints: See page 34
 3.2.2. International Licensing
British
British Firm Customers

Licensing Fee/ Intellectual

Commission
Agreement on sale
Property
Rights

Indian
Indian Firm
Customers

1. Who is the licensee/ licensor ?

2. What do the intellectual property rights include?
3. What are advantages/ disadvantages of international licensing ?
 3.2.3. International Franchising

American Intellectual Property Rights, Training, Business

Franchisor Advice, Marketing assistance, etc.

Franchising Lump Sum & Vietnamese Vietnamese

Royalty
Agreement Franchisee Consumers

Capital

Vietnamese
Investors
 3.2.3. International Franchising
Discussion:
1. What do the intellectual property rights include?
2. What are advantages/ disadvantages of international
franchising?
3. What are differences between franchising and licensing?
Hints: See page 35 & 36
3.2.3. International Franchising
 Topic 3: Contract and Documents
1. The ordering process

2. The contract and contract management

3. UN Convention on CISG

4. Incoterms 2010 rules

[Link] handling and arbitration

6. Documents used in international trade

 1. The ordering process
Arrange the following tasks according to the ordering process and
specify who will do in each step:
A. Make an enquiry G. Accept the quotation
B. Arrange for shipment of the H. Receive an enquiry
goods I. Accept the order by sending
C. Consider the enquiry and order confirmation
make modifications if any K. Forward relevant
D. Ship the goods documents
E. Receive the goods and make L. Check the creditworthiness
payment of the buyer
F. Sign a contract M. Write a quotation and
submit
 1. The ordering process
Vocabulary check:
What are the following forms called in Vietnamese?
- Enquiry
- Firm offer
- Free offer
- Quotation
- Order
- Order confirmation
- Contract
 1. The ordering process
Step Tasks Who will do
1
2
3
4
5
6
7
8
9
10
11
12
2. The contract and contract management
2.1. Definition of “Contract”
An agreement between two or more persons or entities,
which may or may not contain specific terms, in which there is
a promise to do something in return for a consideration
2.2. Conditions for a valid contract to
come into effect
• A firm offer + An acceptance of a firm offer
• An intention to create a contract
• Consideration
• Capacity to contract
• Consent
• Legal purpose
2.2. Conditions for a valid contract to
come into effect
Discussion:
Seller X send an offer to Buyer Y. Which reactions of Y will
form a contract:
A. Give entire acceptance
B. Give acceptance but with reservations or conditions
C. Reject the offer entirely
Hints: See page 42 & 43
2.3. Usual terms of a contract
See page 43 and guess what information should be included in
each term of a contract as belows:

Terms What is included

Commodity name
Quality
Quantity
Price
Delivery
Payment
Packaging
 2.4. Contract management
See page 45 and answer the following tasks belonging to
which department:
Tasks Departments in charge
Find the buyers/ Receive
enquiries
Quote delivery dates and prices
Prepare export documentation
Decide method of settlement
Fulfill the contract
Manage contract processing and
check progress
 2.5. Sources of laws governing the
contract

3.1. Convention or agreements among/ between

countries

3.2. Laws of a specific country

3.3. International practices and customs

3. UN Convention on Contracts for the
International Sale of Goods (CISG)

Read the article on page 46 & 47 and answer the question:

1. What is the CISG about?
2. Who did develop the CISG? When?
3. When did the CISG come into effect?
4. How many countries have ratified the CISG?
5. Who will use the CISG?
6. What are benefits of the CISG?
3. UN Convention on Contracts for the
International Sale of Goods (CISG)
Content of the CISG:
• Sphere of application and
Part 1
general provisions

Part 2 • Formation of the contract

Part 3 • Sales of goods

Part 4 • Final provisions

 3. UN Convention on Contracts for the
International Sale of Goods (CISG)
Discussion:
- What are the downside of the CISG?
- If Vietnam has joined the CISG? We do not need pass
through any laws and regulations about contract?
Hints: See page 49
 4. International Commercial Terms
(Incoterms)
See page 91 and answer the question:
- What are Incoterms about?
- What are the benefits of using Incoterms?
- What are “Shipping terms” and “terms of delivery” about?
 Allocations of costs buyer/seller according to Incoterms 2010

Carriage
Unloading Loading (Sea Unloading Loading
Export- Carriage Carriage to Import Import
Incoterm of truck in charges in Freight/Air charges in on truck in
2010
Customs to port of port of port of Freight) to port of Insurance port of
place of customs
declaration export destination clearance taxes
export export port of import import
import

EXW Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer
FCA Seller Seller Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer
FAS (By
Seller Seller Seller Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer
Sea only)

FOB (By
Seller Seller Seller Seller Buyer Buyer Buyer Buyer Buyer Buyer Buyer
Sea only)

CFR (By
Seller Seller Seller Seller Seller Seller Buyer Buyer Buyer Buyer Buyer
Sea only)

CIF (By
Seller Seller Seller Seller Seller Seller Seller Buyer Buyer Buyer Buyer
Sea only)
CPT Seller Seller Seller Seller Seller Seller Buyer Seller Seller Buyer Buyer
CIP Seller Seller Seller Seller Seller Seller Seller Seller Seller Buyer Buyer
DAT Seller Seller Seller Seller Seller Seller Seller Buyer Buyer Buyer Buyer
DAP Seller Seller Seller Seller Seller Seller Seller Seller Seller Buyer Buyer
DDP Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller
4. International Commercial Terms
(Incoterms)

Where is the risk

transferred from the
buyer to the seller?

How is the cost allocated

between the buyer and
the seller?

What are obligations of

the buyer and the seller?
 4. International Commercial Terms
(Incoterms)
A. THE SELLER’S OBLIGATIONS B. THE BUYER’S OBLIGATIONS
A1. General obligations of the seller B1. General obligations of the buyer
A2. Licences, authorizations, security B2. Licences, authorizations, security
clearances and other formalities clearances and other formalities
A3. Contracts of carriage and insurance B3. Contracts of carriage and insurance
A4. Delivery B4. Taking delivery
A5. Transfer of risks B5. Transfer of risks
A6. Allocation of costs B6. Allocation of costs
A7. Notices to the buyer B7. Notices to the seller
A8. Delivery document B8. Proof of delivery
A9. Checking – packaging – marking B9. Inspection of goods
A10. Assistance with information and related B10. Assistance with information and related
costs costs
5. Dispute handling and arbitration
Three basic means of resolving a dispute:
- Reaching a mutually satisfactory compromise
- Arbitration
- Presenting to courts
See page 50 and list the advantages and disadvantages
of each method above
 Discussion
What are documents used in international
trade? Why do need them?
6. Documents used in international trade

6.1. Financial documents

6.2. Transport documents

6.3. Commercial documents

6.4. Insurance documents

 Discussion
How many kinds of financial documents can you
think of?
 6.1. Financial documents
• Bill of Exchange
• Promissory Note
 Discussion
Read page 77-80 and answer the following
questions:
1. Is there any different way to call a Bill of
exchange?
2. By which law Bill of exchange is governed?
3. How many parties involved in a Bill of exchange
transaction?
4. What are the characteristics of a Bill of exchange?
5. How many types of Bill of exchange?
 6.1.1. Bill of exchange
According to the UK Bills of Exchange Act 1882:
“A bill of exchange is an unconditional order in writing,
addressed by one person to another, signed by the person
giving it, requiring the person to whom it is addressed to pay
on demand or at a fixed or determinable future time a sum
certain in money to or to the order of a specified person or to
bearer”
 6.1.1. Bill of exchange
Sample 1:
Bill of exchange(1)
No123a.b(2) (4)Ha noi, 27, Sep, 2008(5)
For 1400US dollars(3)
(6)At sight of this first Bill of exchange (second of the same
tenor and date being unpaid) pay to the order of MrX(7)
the sum of (3)American United State one thousand four
hundred.
(8)To [Link] (10) TOCONTAP. comp
(9) Japan Signed
 Question
Which of the following payment time is
considered as “determinable future time”?
1. 90 days after B/L’s date
2. 90 days after invoice date
3. 90 days after the arrival of the ship
4. 90 days after sight
5. 90 days after date
6. 90 days after date sight
 6.1.1. Bill of exchange
Sample 2: Explain the meaning of notes from (1) to (10)
Bill of exchange(1)
No123a.b(2) (4)Ha noi, 27, Sep, 2008(5)
For 1400US dollars(3)
(6)At D/A 60 days after date sight of this first Bill of exchange
(second of the same tenor and date being unpaid) pay to
the order of …. the sum of (3)American United State one
thousand four hundred.
(8)To [Link] (10) TOCONTAP. comp
(9) Japan Signed
 6.1.1. Bill of exchange
Sample 3: Explain the differences between B/E Sample 2 and 3
No 134/EX Hanoi 12 November 2009
For USD 100.000,00 Bill of Exchange
At x x x days after sight of this first of bill of exchange (second of
the Same tenor and date unpaid ) pay to Bank for Foreign Trade of
Viet Nam or order the sum of one hundred thousand US dollars
only.
Value received and charge the same to account of Sanyo Co. Ltd
Tokyo.
Drawn under The Taiyo Kobe Bank Ltd.
L/C No. 071A282 LC99 dated 12 October 2009.
To: The Taiyo Kobe Bank Ltd Barotex company,
Tokyo Hanoi
(Signature)
 6.1.1. Bill of exchange
Types of B/E:

• At sight bill/ On demand bill/ Sight

draft
Maturity date • Usance bill/ Time bill/ Term draft/
Usance draft

• Nominal bill
Negotiability • Holder or bearer Bill
• Order bill
 6.1.1. Bill of exchange
Compare At sight Bill and Term/Usance Bill

When to make How to make The issue of The issue of

payment payment acceptance ‘discounting’

At sight Bill

Term/Usance
Bill
 Discussion
Explain the following terms?
 Drawer:…..
 Drawee:…..
 Payee:…
 Acceptor:…
 Endorser:…
 Excercise
Mary sold goods worth USD10,000 to John and drew a bill of
exchange upon her for the same amount payable after three
months. Here, Mary is the _____of the bill and John is the ____. If
the bill is retained by Mary for three months and the amount of
USD10,000 is received by her on the due date then Mary will be
the _____. If Mary gives away this bill to her creditor Rachel, then
Rachel will be the ____. If Mary gets this bill discounted from the
Bank of America (BOA) then BOA will become the _____.
In the above mentioned bill of exchange, Mary is the _____and
John is the _____. Since John has accepted the bill, he is the
______. Suppose in place of John the bill is accepted by Alice then
Alice will become the ______.
 Discussion
Read carefully page 78,79 and answer the following
questions
1. So as to force seller to comply with obligation specified in
the contract, the buyer require the seller to include a
clause in the B/E that this B/E will be invalid if the seller
violate contract terms. Is it allowable?
2. Can every B/E be negotiable? Explain why.
 6.1.1. Bill of exchange
You are about to see three samples of B/E. Look at each
sample carefully and do the following tasks:
- Classify each sample with their appropriate types of B/E
- Explain the meaning of notes from (1) to (10) in sample 1
&2
- Explain the differences between sample 2 & 3
 6.1.1. Bill of exchange
Sample 1:
Bill of exchange(1)
No123a.b(2) (4)Ha noi, 27, Sep, 2008(5)
For 1400US dollars(3)
(6)At sight of this first Bill of exchange (second of the same
tenor and date being unpaid) pay to the order of MrX(7)
the sum of (3)American United State one thousand four
hundred.
(8)To [Link] (10) TOCONTAP. comp
(9) Japan Signed
 6.1.1. Bill of exchange
Sample 2: Explain the meaning of notes from (1) to (10)
Bill of exchange(1)
No123a.b(2) (4)Ha noi, 27, Sep, 2008(5)
For 1400US dollars(3)
(6)At D/A 60 days after date sight of this first Bill of exchange
(second of the same tenor and date being unpaid) pay to
the order of …. the sum of (3)American United State one
thousand four hundred.
(8)To [Link] (10) TOCONTAP. comp
(9) Japan Signed
 6.1.1. Bill of exchange
Sample 3: Explain the differences between B/E Sample 2 and 3
No 134/EX Hanoi 12 November 2009
For USD 100.000,00 Bill of Exchange
At x x x days after sight of this first of bill of exchange (second of
the Same tenor and date unpaid ) pay to Bank for Foreign Trade of
Viet Nam or order the sum of one hundred thousand US dollars
only.
Value received and charge the same to account of Sanyo Co. Ltd
Tokyo.
Drawn under The Taiyo Kobe Bank Ltd.
L/C No. 071A282 LC99 dated 12 October 2009.
To: The Taiyo Kobe Bank Ltd Barotex company,
Tokyo Hanoi
(Signature)
 Test your understanding
Write ‘True’ or ‘False’ against each statement regarding a bill of
exchange:
(i) A bill of exchange must be accepted by the payee.
(ii) A bill of exchange is drawn by the creditor.
(iii) A bill payable on demand is called Time bill;
(iv) The person to whom payment is to be made in a bill or exchange is
called payee.
(v) A negotiable instrument does not require the signature of its
maker.
(vi) A negotiable instrument is not freely transferable.
(vii) The time of payment of a negotiable instrument need not be
certain.
 6.1.2. Promissory notes
According to the UK Bills of Exchange Act 1882:

“An unconditional promise in writing made by one person to

another signed by the maker, engaging to pay, on demand at
a fixed or determinable future date a sum certain in money to,
or to the order of, a specified person or bearer.”
 6.1.2. Promissory notes
Read page 80 & 81 and answer the questions:
1. Who issues the Promissory note?
2. How many types of the promissory note?
3. Why is the promissory note negotiable?
4. Why is B/E popular as a negotiable instrument but
promissory note which is also negotiable is mostly used as
debt instrument?
 Promissory note
No.: 095576/BH
For: USD 1,000.00 New York, 20th of December 2007

On the 20th of December 2008 fixed of this Promissory note,

we promise to pay to the order of HOANGLONG EXPORT- IMPORT
COMPANY IN HANOI, VIETNAM
the sum of UNITED STATE DOLLARS ONE THOUSAND ONLY.
Place of payment: For and on behalf of
CITIBANK NEW YORK Sister and Brother Company Ltd.,
New Street, New York, USA
(signature)
 6.1.2. Promissory notes
Compare Promissory Note and Bill of Exchange
Bill of Exchange Promissory Note

Drawer/Maker

Parties

Nature of payment

Issue of acceptance

Liability

Payee
 Financial documents
• Definition of B/E
• Parties involved
• Characteristics
• Types of B/E
• Definition of Promissory Note
• Parties involved
• Differentiate between B/E and Promissory
Note
 Vocabulary check
• Bill of Exchange/Draft/Bill
• Unconditional order
• Drawer
• Drawee
• Acceptor
• Payee/Beneficiary, Bearer
• At sight Draft
• Term/Usance Draft
• Maturity
• Acceptance
• Discount
• Payable at sight/on presentation/maturity date
• Non-payment/Non-acceptance
 6.2. Transport documents
• Bills of lading
• Non-negotiable seaway bills & Air waybills
• Road transport documents
• Rail consignment notes
• Parcel or courier receipts
 6.2.1. Bill of lading
Definition:
Documents issued by a carrier, a master or their respective
agent and usually have a quasi-negotiable status
Role:
 Evidence of ….
 A receipt for …
 Providing … to receive the goods
 6.2.1. Bill of lading
Read page 82 & 83 and answer the question:
1. Who can take possession of the goods under a B/L?
2. What does the term “shipped on board” marked on B/L
mean?
3. What happen when a B/L is surrendered?
4. What is a “clean” bill of lading?
 6.2.1. Bill of lading
• Combined transport or multimodal transport documents
• Liner Bills of Lading
• Charter party bills of lading
 6.2.2. Non-negotiable seaway bills & Airway
Bills
Read page 84 & 85 and answer the question:
1. What are the downsides of negotiable B/L in case that
transporting time is short?
2. How the carrier can verify who are the consignee?
3. What are difference between a B/L and airway bills or non-
negotiable seaway bills?
 6.3. Commercial and other documents
• Commercial invoice
• Packing/ Weight list
• Certificate of Origin
• Pre-shipment inspection certificates
• Phytosanitary inspection certificates
• Export licenses
• Import licenses
6.3. Commercial and other documents
See page 86, 87 & 88 and fill out the following table:
Name of Document Issued by Role Content
whom
Commercial invoice
Packing/ Weight list
Certificate of Origin
Pre-shipment
inspection certificates
Phytosanitary
inspection certificates
Export licenses
Import licenses
 6.4. Insurance documents
• To protect buyers, sellers and banks who finance trade
transactions against risk of loss, eg. due to weather, theft,
strikes, civil commotion, war and piracy
• Who will pay for insurance ?
 6.4. Insurance documents
General Cargo Clauses of the Institute of London Underwriters

Coverage level increases

Level A
Level B

Level C
 6.4. Insurance documents
See page 90 and fill out the following table:

Type of insurance When to use Content

documents
Insurance policy

Insurance certificate
 Discussion
1. What is “methods of settlement”?
2. Form a group and discuss with your friends to see how
many methods of settlement can you name? (in both
English and Vietnamese)
Topic 4: Methods of settlement
4.1. Open Account

4.2. Documentary Collection

4.3. Bank Payment Obligations

4.3. Documentary Credit

4.4. Payment in Advance

 Discussion

What are the factors influencing the choice of

methods of settlement?
The Risk Pyramid
Op
en
Ac
co
un
Documentary
t
Collection
Bank Payment
Obligations

Documentary Credit

Payment in Advance
 Watch the videos and answer the following
questions
1. Why is it called “Open account”?
2. Is it advantageous to the buyer?
3. Is it advantageous to the seller?
4. What is the risk of using open account?
5. What needs to be considered when using
open account?
 4.1. Open Account

Definition
An arrangement between the buyer and seller whereby the
goods are manufactured and delivered before payment is
made.
 4.1. Open Account
Can you complete the Open account transaction flow?

Importer Exporter

Importer’s Bank Exporter’s Bank

 4.1. Open account
Discussion
Read page 107 and answer the following questions:
1. What are the risks involved in open account trade?
2. When should Open account be used?
3. What are the pros and cons of using Open account to the
Seller and the Buyer?
4. How to minimize the risks involved in open account trade?
 4.1. Open account
Vocabulary check
1. Despatch
2. Remit
3. Trustworthiness
4. Creditworthiness
5. Regular shipments
6. Credit insurance
7. Export invoice discounting
8. Factoring facility
9. Accelerate cashflow
 4.2 Documentary Collection
4.2.1 Governing Law

4.2.2 Definition

4.2.3. A typical Documentary collection

transaction flow

4.2.4. Parties and their responsibilities

4.2.5. Types of Documentary Collection

 Discussion
What is the difference between Open account
and Documentary Collection?
 Discussion
Read page 113-114 and answer the following
questions:
• Who initiates documentary collection?
• How many parties involved in the
documentary collection?
• What is the role of banks?
• Which law/rules governs documentary
collection?
 4.2.1. Governing Law: URC
 A set of rules published by the
International Chamber of
Commerce (ICC).
 URC stands for the Uniform
Rules for Collection. The latest
version is publication no. 522 –
‘URC 522’. URC 522 is in force as
of January 1, 1996.
 URC 522 consists of 32 pages
with 26 articles.
 Discussion
The use of The Uniform Rules for Collections is:
a. Compulsory
b. Optional
c. Compulsory or Optional depends on each
country’s regulation
 4.2.2 Definition

URC 522 (ICC,1995) sub-article 2 (a) defines a collection as

being:
The handling by banks of documents …in accordance with
intructions received, in order to:
I. Obtain payment and / or acceptance, or
II. Deliver documents against payment and / or against
acceptance, or
III. Deliver documents on other terms and conditions.
 4.2.2 Definition
Discussion

1. What kind of documents used in documentary collection?

[Link] documents
[Link] documents
[Link] commercial and financial documents
[Link] commercial and financial documents (if any)

2. How many banks involved in the documentary collection trade?

[Link]
[Link]
[Link]
[Link] of the above
 Collection Intructions
Sample Application for Documentary Collections 1
Sample Application for Documentary Collections 2
Sample Documentary Collection Instructions
4.2.3 A Typical Documentary Collection Transaction Flow
Read page 114-115 and page 118-120 and complete the transaction flow

A B

C D
 4.2.3 A Typical Documentary Collection
Transaction Flow
Can you list other names to call the following main parties to a
collection:
- The principal
- The remitting bank
- The collecting bank
- The presenting bank
- The drawee
 4.2.3 A Typical Documentary Collection
Transaction Flow
Discussion
West Bank sends a collection on behalf of one of their
exporters to their correspondent, North Bank. North Bank
passes it on to the importer’s bank, East Bank. East Bank
contacts the importer and requests payment.
a. What is West Bank called?
b. What is North Bank called?
c. What is East Bank called?
4.2.4 Parties and their responsibilities
4.2.5 Types of documentary collection

D/P - Documents against Payment

D/A - Documents against Acceptance

D/TC - Documents against other Terms &

Conditions
Listening Challenge
4.2.5 Types of documentary collection
Compare Documents against Payment (D/P) and Documents
against Acceptance (D/A)
D/P D/A

Time of payment

Transfer of goods

Types of draft used

Exporter’s Risk
 Avalisation
• Banks guarantee payment of a draft by giving its ‘aval’
• Aval means guaranting payment of draft (generally usance)
by a third party, generally a bank
• Payee’s rights of negotiability and transferability remain the
same
• A party negotiating a draft thus acquires a right of getting
paid from the Avaling Bank
 Avalisation

Buyer Seller draws B/E on Buyer Seller

Buyer accepts B/E
and forwards to

te e)
ra n ho
its Bank

( g ua r (W )
va l’ elle one
s ‘a to S ny
s it ack to a
a dd ns b te it
ank etur otia
B d r eg
an can n

Bank
 Listening challenge

Watch a video and answer the following question:

What are the differences between Documents against

Payment and Documents against Acceptance?
 Discussion

What is Clean Collection?

a. The collection where Clean Bill of Lading is used
b. The collection of financial documents without any
commercial documents attached
c. The collection of commercial documents without any
financial documents attached
 Compare the obligations of Collecting
Bank/Presenting Bank in Clean Collection and
Documentary Collection
Obligations of Collecting Bank/Presenting Bank Clean Documentary
Collection Collection
Not obliged to handle a collection received
Release documents upon receiving payment from the
buyer
Present financial documents for payment or acceptance
Examine the collection instructions and the documents
Not responsible for the genuineness or validity of any
documents
Release documents after obtaining the acceptance from
the drawee
Collect charges
Once payment is received, transfer the funds to the
remitting bank
 Listening challenge

Watch a video and answer the following question:

What are the risks and benefits of using Documentary

Collection?
 Vocabulary check
•Clean collection
•Avalisation
•Documents against payment
•Documents against acceptance
•Principal
•Remitting bank
•Collecting bank
•Drawee
•Presenting bank
•URC 522
•Collection instructions
•Stamp duty
•Credit standing
•Perishable
•Entrust
•Store and insure
•Case of need
 Summary
• What is documentary collection?
• What is the governing rule?
• What is collection instructions and its main content?
• What are the main parties involved?
• D/P vs. D/A
• What is avalisation?
• Clean collection vs. documentary collection
• Risks and benefits of using documentary collection
• In which cases should documentary collection be applied?
• How can documentary collection be compared to open account
trading?
 4.5. Payment in Advance
Definition
The method where full or significant partial payment is
required, usually through a credit card or a bank or wire
transfer before the ownership of the goods transferred.
Payment in advance, especially a wire transfers: most
secure and favorable method of payment for exporters
and least secure for importers.
 4.5. Payment in Advance
Can you complete the Payment in Advance transaction flow?

Buyer Seller

Importer’s Bank Exporter’s Bank

 4.5. Payment in Advance
Discussion
1. Can you compare the transaction flow of payment in
advance with that of open account?
2. Discuss the advantages and disadvantages of using
payment in advance to the Seller and Buyer?
3. If you were the exporter, which method of payment would
you choose among open account, documentary collection
and payment in advance? Why?
4. If you were the importer, which method of payment would
you choose among open account, documentary collection
and payment in advance? Why?
 4.4 Documentary Credit
4.4.1. Governing Law: UCP & ISBP

4.4.2. Basic principles

4.4.3. A typical Documentary Credit

transaction flow

4.4.4. Parties and their responsibilities

4.4.5. Terminologies

4.4.6. Types of documentary credit

 Discussion
Read page 109 and discuss with your friend about the
following questions:
• What is documentary credit also called?
• What is the difference between documentary credit and
other method of payments that you have learned?
• How many parties do you think are involved in a
documentary credit arrangement?
• Can you draw a transaction flow for documentary
credit?
• Which rules governing the use of documentary credit?
 Discussion
Work in group and list as many other ways to call this method
of settlement as possible.
 Listening challenge
Listen to a video and complete the following paragraph about UCP

For more than __________ years, letter of credits issued worldwide have
been subject to UCP, making UCP the most successful set of private rules in
use today. The UCP was first introduced by the
___________________________ in ___________ to create a set of uniform
and internationally applicable rules regarding letter of credit transactions.
Over the years, UCP has been revised _______ times to ensure it is
consistent with current market trends and developments in international
trade. The latest 7th revision refers to as____________. UCP 600 contains
_________articles, which provide the ______________to parties such as
______________________________ , etc.
4.4.1 Governing law: UCP & ISBP
UCP
 Stands for Uniform
Customs and Practice for
Documentary Credit
 The latest version
published under ICC
publication no. 600
(referred to as ‘UCP 600’),
came into force on 1 July
2007
 Contains 39 articles
 4.4.1 Governing law: UCP & ISBP
ISPB
Stands for International
Standard Banking Practice for
Examination of Documents
A publication giving guidance
on how articles of UCP 600
should be interpreted and
applied in the examination of
documents
The latest version is ISBP 745
Contain 280 articles
 4.4.1. Governing law
Discussion
1. What is the difference between UCP and ISBP?
2. Is the use of UCP and ISBP compulsory?
 4.4.2 Basic principles
Definition
An irrevocable undertaking given by a bank whereby it
undertakes to honor a presentation of documents submitted in
accordance with the terms and conditions of the documentary
credit and in compliance with UCP 600. (ICC, 2013)

Main features
 Irrevocable undertaking by a bank
 ‘honor a presentation’
 Banks only deals with documents, not the goods
 ‘in accordance with the terms and conditions of the
documentary credit’
 4.4.2. Basic principles
Discussion

1. Can you differentiate between irrevocable and revocable

L/C?
2. A credit is irrevocable even if there is no indication to that
effect. True or False?
3. When should a Bank add their confirmation to the letter
of credit?
4.4.2. Basic principles
Discussion
What is ‘honor a presentation’?
(Hints: Read Article 2 UCP 600)
 4.4.2 Basic principles
Banks only deals with documents, not the
goods, services or performance to which the
documents may relate.
 “Documentary structure” – UCP article 5
 UCP sub-article 14(a)
- On the basis of the documents alone
- The documents appear on their face
- A complying presentation
 4.4.2 Basic principles
Example
Which of the following conditions illustrating the fact that ‘Banks
only deals with documents, not the goods’? (You may choose
more than one correct answer.)
a. Exported goods must be Australian Origin.
b. Certificate of origin issued in 1 original and 1 copy legalized
by the local chamber of commerce attesting that goods are
of China origin.
c. All documents must be issued or filled in English language.
d. Each piece of textile is labeled with a tag showing the
following: brand, origin, material construction.
 4.4.2 Basic principles
‘in accordance with the terms and conditions of
the documentary credit’
 What is the condition of the irrevocable
undertaking by a bank?
 What is the condition that a bank require from
the buyer (the applicant of documentary
credit)?
 4.4.2 Basic principles
‘in accordance with the terms and conditions of the
documentary credit’
A bank will undertake to to honor a presentation of
documents submitted if the documents are complied with
the terms and conditions of:
a. UCP 600
b. the documentary credit
c. The documents
d. Sales contract
e. ISBP 745
 4.4.3 A typical Documentary Credit
transaction flow

Watch a video and see how many parties involved in

a Documentary Credit transaction flow you can hear?
4.4.3 A typical Documentary Credit transaction flow
Can you put the parties you have heard into the parties named A, B, C, D below?

A B

C D
4.4.4 Parties and their responsibilities
4.4.4 Parties and their responsibilities

Listening
Watch the video and list briefly the main
responsibilities of each party in the documentary credit
transaction flow.
 4.4.3 A Typical Documentary Credit
Transaction Flow
a. Documents creation and presentation
b. Documents examination and payment
c. Documents presentation to ask for reimbursements
d. Documentary Credit Advised
e. Sales Contract
f. Documents examination and reimbursements
g. Goods shipped
h. Documentary Credit Application
i. Documents examination and negotiation
j. Sales Contract
k. Documents examination to ask for payment
l. Documentary Credit Issued
 4.4.3 A typical Documentary Credit transaction flow
Using the steps provided in the previous slide, can you complete the transaction flow ?

A B

C D
 Discussion

Read page 144-145 and answer the following questions.

1. What are the considerations that should be agreed by the
parties before the buyer asks its bank to issue the credit?
2. Why does the bank mark the credit as a contingent
liability? What are the options for the bank to protect it
against loss?
3. What are the information that you will expect to see on an
application form for L/C?
 4.4.5 Terminologies

Payment terms
1. At sight
2. Acceptance
3. Deferred payment
4. Negotiation
 Payment terms
Read page 147-148 and complete the table

Sight payment Acceptance Deferred Negotiation

payment

Time of payment
Types of
commercial
documents used

Types of draft used

The obligation of
nominated bank

The obligation of
issuing bank
4.4.6 Types of Documentary Credit

‘Red clause’
Transferable Back-to-back
and ‘green
Credits Credits
clause’ credits

Revolving Standby
documentary letters of
credits credit
 Transferable Credits
• Fulfills the needs of intermediaries
• Definition
• Important points
• Procedure
 Back to back credits
• Definition
• Procedure
• Parties involved
• Flow of documents and payment
• Roles and responsibilities of each party
• Issuing conditions for Back to back credits
4.3. Bank Payment Obligations (BPOs)

What is the urge underlying the birth of a

brand-new method of payment – BPOs?
 4.3. Bank Payment Obligations (BPOs)

Read page 108 and answering the following questions

• By which bodies was BPOs developed?
• When was BPOs born?
• Is there any rules governing BPOs?
 4.3. Bank Payment Obligations (BPOs)

Definition
A BPO is an irrevocable undertaking given by one bank to
another bank that payment will be made on specified date
after a successful electronic matching of data according to an
industry-wide set of rules.
 4.3. Bank Payment Obligations (BPOs)

Important terms
• TMA, TSU
• ISO 20022 standards (page 273-274 for more)
• URBPO
• Obligor bank
• Recipient bank
4.3. Bank Payment Obligations (BPOs)
Sample Bank Payment Obligation Transaction Flow
 4.3. Bank Payment Obligations (BPOs)
Step 1 : Buyer and seller agreed on BPO (bank payment obligation) as a payment term on the sales
contract. Buyer send its purchase order to the seller.
Step 2 : Buyer provides the minimum data from the purchase order and conditions of the bank
payment obligation to the obligator bank.
Step 3 : Seller confirms the data from the PO and send its acceptance of the BPO conditions to the
recipient bank. If both buyer's and seller's data are matched on the Transaction Matching Application
than the baseline is established. Both buyer and seller will be receiving a matching reports from their
banks.
BPO is irrevocable but conditional payment method. (payment is subject to the electronic matching
of agreed datasets)
Step 4 : Seller ships the goods as agreed on the sales contract.
Step 5 :Seller presents the shipment data and invoice data to its bank, which submits it to Transaction
Matching Application for matching.
Step 6 : Buyer receives a match report from its bank. Buyer is invited to accept any mismatches if any.
Step 7 : Seller's bank inform seller about the successful dataset match.
BPO becomes operative and due according to the agreed payment terms.
Step 8 : Seller sends the trade documents directly to the buyer. Buyer will clear goods from the customs
with these documents.
Step 9 : On the due date, the obligor bank debits the proceeds from buyer's account
 4.3. Bank Payment Obligations (BPOs)
Discussion
1. Compare and contrast BPOs and Documentary Credit?
2. Compare and contrast BPOs and Open Account?